CYCLE-TO-WORK SCHEME
Cycle-to-work scheme back on track
The cycle-to-work scheme is “back on track after it emerged that cyclists can still retain tax benefits” via an extended user agreement, according to a report in the Guardian newspaper. A recent ruling by HM Revenue & Customs had appeared to throw the scheme into jeopardy, but providers say they have now found a solution.
--> “Cycle to Work scheme is back after agreement over bike tax benefit”, Miles Brignall, The Guardian, 13 November 2010. Read the article online at: www.guardian.co.uk/money/2010/nov/13/cycle-to-work-bike-tax-benefit.
Background
The cycle-to-work initiative is a tax-efficient, salary-sacrificed employee benefit aimed at encouraging more adults to take up cycling. According to the Cycle to Work Alliance, there are currently 255,000 people taking advantage of the scheme. This involves 650 bike retailers and 15,000 employers.
However in August this year, HM Revenue & Customs announced new guidelines aimed at simplifying the administrative burden for employers who implement the cycle-to-work scheme. There were concerns that the changes could undermine the scheme and make it more expensive for employees.
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Introduced in the 1999 Finance Act, the scheme encourages employers to loan bicycles and cyclists’ safety equipment to employees as a tax-exempt benefit. Under the scheme, employers buy cycling equipment from approved suppliers, and hire it to their employees. After an agreed period (one to three years on average) of repayments, employees are able to choose to buy the bike from their employer at a reduced rate.
When the loan plan has ended, the employer can offer the employee the chance to make a fair market value payment - usually 5% of the purchase price (but often nothing) - to buy the bicycle from the employer.
But in August, when HMRC issued a clarification on how employers should calculate the fair market value for the bicycle at the end of the hire period, it argued that the fair value should be much more than 5%. In fact, HMRC’s new simplified valuation table suggested a bike which cost “£500 plus” has a disposal value of 25% of its purchase price after one year.
Want to know more?
EIM21667 - Particular benefits: bicycles: transfer of bicycle to employee, HM Revenue & Customs, August 2010: www.hmrc.gov.uk/manuals/eimanual/EIM21667.htm
EIM21667a - Particular benefits: bicycles: simplified approach to valuing cycles sold to employees after end of loan period, HM Revenue & Customs, August 2010: www.hmrc.gov.uk/manuals/eimanual/EIM21667a.htm
Salary sacrifice arrangements involving cycles and bus passes, HM Revenue & Customs, August 2010 (four-page PDF): www.hmrc.gov.uk/specialist/cycles_bus_passes.pdf
Cycle to Work Scheme - Implementation guidance, Department for Transport, October 2009: www.dft.gov.uk/pgr/sustainable/cycling/cycletoworkguidance
Cycle to Work Alliance, The Cycle to Work Alliance brings together a group of leading providers of the cycle to work scheme, including Cyclescheme, Cycle Solutions, Evans Cycles and Halfords: www.cycletoworkalliance.org.uk